By Lucia Mutikani
WASHINGTON (Reuters) – U.S. producer prices rose slightly in June as the cost of energy and other goods dropped for a second straight month, resulting in the smallest annual increase in producer inflation in nearly 2-1/2 years.
The report from the Labour Department on Friday also showed a slowdown in underlying producer prices last month, a sign that overall inflation could continue to rise moderately despite strong gains in prices of some consumer goods and services in June.
Low inflation and growing risks to the economy from a trade war between the United States and China, and cooling global growth are likely to see the Federal Reserve cutting interest rates this month for the first time in a decade.
Fed Chairman Jerome Powell on Wednesday told lawmakers the U.S. central bank would “act as appropriate” to protect the economy against these risks.
The producer price index for final demand edged up 0.1% last month after a similar gain in May. In the 12 months through June, the PPI rose 1.7%, the smallest gain since January 2017, slowing further from a 1.8% increase in May.
Economists polled by Reuters had forecast the PPI unchanged in June and increasing 1.6% on a year-on-year basis.
Excluding the volatile food, energy and trade services components, producer prices were unchanged in June after rising 0.4% for two straight months. The so-called core PPI increased 2.1% in the 12 months through June after advancing 2.3% in May.
The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. U.S. stock index futures were trading higher.
The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.6% year-on-year in May and has undershot its target this year.
In June, wholesale energy prices fell 3.1% after slipping 1.0% in the prior month. Goods prices decreased 0.4% last month after declining 0.2% in May. A 5.0% drop in gasoline prices accounted for nearly 60% of the decline in the cost of goods last month.
Wholesale food prices rebounded 0.6% in June, driven by chicken eggs and fresh fruits and melons. Corn prices surged 19.9%, the largest rise since July 2015.
Excluding food and energy, goods prices were unchanged for three straight months.
The cost of services increased 0.4% in June, the most since October 2018, after rising 0.3% in May. Services were boosted by an increase in margins received by wholesalers and retailers.
Portfolio management prices dropped 1.8% last month.
The cost of healthcare services rose 0.2% last month, matching May’s gain. Prices for doctor visits and dental care were unchanged last month. However, the cost of hospital care increased a solid 0.4% in June. Those healthcare costs feed into the core PCE price index.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)